Markets approach the Christmas holiday in a mild panic state. Overview of USD, CAD, JPY

Market volatility declines, as Christmas approaches. This is because Brexit negotiations are not yet concluded, whose influence is fading into the background. On the other hand, the quick process of introducing the new US stimulus package will add slight positivity, since things are getting worse after yesterday's publication of macroeconomic data.

The University of Michigan Consumer Confidence Index did not rebound after the decline last Spring. Therefore, consumers do not expect any pleasant surprises in the near future.

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November's growth in personal consumption expenditures was 1.1%. Personal income declined by 1.1%, against the forecast of -0.3%. At the same time, expenditures on durable goods rose by 0.9% against an increase of 1.8% a month earlier. Sales of new homes, in turn, declined by 11%.

The new stimulus package passed by Congress will end quickly. Trump has not yet signed the bill, and the money has already been distributed to the last cent.

Strong movements should not be expected today, so trading in a range with an increasingly smaller amplitude is the most likely scenario.

USD/CAD

The US dollar has regained some of the losses against its Canadian counterpart, but the upward movement looks like a correction so far. There were no noticeable changes in financial flows, but the latest data on CME futures and options (reduction of the short position by 0.38 billion), was in favor of the CAD.

Also in favor of the Canadian dollar are the yield spread and inflation expectations, which can be taken as a marker of the sentiment of the Bank of Canada and the Fed. Accordingly, the target price is below the long-term average and did not reverse upwards.

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It was noted last week that a prolonged decline in USD/CAD could lead to a correction. The recent growth looks exactly like this. The resistance can be found in the zone of 1.2990/3000, therefore, it is recommended to keep short positions when reaching this zone. It is possible to sell with the target of moving under the level of 1.2680.

The scenario could change if there is a sharp demand for the dollar on Monday, which leads to a revaluation of financial flows. In any case, the CFTC report will be published late due to Christmas.

USD/JPY

On December 23, the Bank of Japan published the minutes of its monetary policy meeting held on October 28-29. If you express the essence of the document in one word, the word "uncertainty" can be used, which occurs many times when expressing the Bank's position on a number of issues. Moreover, the Central Bank actually admitted that it does not understand how firms behave in the Japanese market in terms of pricing and the impact on inflationary expectations.

In particular, BoJ confusingly noted that firms do not cut prices in order to stimulate demand. It has been argued that firms probably felt that price declines could not stimulate demand, given that the decline in demand was driven by limited economic activity. In other words, if consumers are not the reason for the decline in activity, then there is no need to stimulate them, since there will be no result.

Thus, prices are not declining on the wave of low raw material prices and declining labor costs. During the other day, Keidanren released its Final Winter 2020 Bonus Report for Major Employers by Industry. It shows a weighted average decline of 9.02% y/y, the first drop in eight years. That is, Japanese companies save on employee benefits, cutting costs, but do not expect any growth in consumer demand at the same time.

The current situation indirectly indicates that no positive changes in inflation should be expected. This drastically reduces the capacity of the Bank of Japan and the government, so the chances of fiscal stimulus increase.

The yen may weaken in anticipation of intervention. The estimated price is higher than the spot price, and there is an upward turn, which increases the chances of completing the decline of the USD/JPY pair.

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At the moment, it is possible to rise to the resistance zone of 104.10/30, formed by this year's trend line and September local low. However, it is too early to count on growth above this resistance, as the signs of a revaluation of the dollar's prospects are still unreliable. Nevertheless, there are low chances that the pair will continue to decline below 102.87.

The material has been provided by InstaForex Company - www.instaforex.com